Moody's noted that the downgrading was a reflection of the Spanish government's declining ability to support the banks and their standalone credit profiles. It noted that the banks' exposure to commercial real estate (CRE) was likely to cause higher losses, which might increase the likelihood of these banks requiring external support.
The report comes after Moody's downgrade of Spain's government bond ratings to Baa3 from A3 earlier this month. In May, it downgraded 16 Spanish banks.
Notably, Banco Santander received a rating of Baa2 down from A3 but one notch higher than that of the sovereign. The standalone ratings of all the other affected banks are now at par with or below Spain's Baa3 rating.
Meanwhile, Moody's seemed positive about the efforts by the Spanish government to stabilize the entire banking system. Spain has already sought an assistance of 100 billion euros ($125 billion) to recapitalize Spanish banks from the euro zone.
However, there are concerns that this borrowing will increase Spain's debt/GDP ratio by nearly 10 percentage points. The continued weakness of the Spanish economy has made it difficult for the government to solve the problem.